Thoughts on business school, economics, NC State, and everyday life from an economist at NC State's business school

Monday, February 21, 2011

Are state and local government workers overpaid?

If you look at the raw data, you see that wages and benefits for government workers are higher than compensation for private sector workers. According to a recent study by the Bureau of Labor Statistics, state and local workers earn an average of $39.25 an hour in wages and benefits in December 2008, $11.90 more than private sector workers.

But the raw data do not tell the entire story, because the educational requirements for government jobs are on average greater than those for private sector jobs (keep in mind that more than half of state employees in NC are employed in education). A recent study done by (ironically) two University of Wisconsin-Milwaukee economists finds that once you control for differences in worker and job characteristics, state and local government workers receive wages that are 11-12 percent less than their private sector counterparts. There is a different story on the benefits side, with government workers receiving more generous pension and health benefits. With benefits factored in, state and local government employees still trail in pay by about 7 percent.

Clever readers may well ask how can governments attract and retain employees if they pay 7 percent less than the private sector. Some possibilities: greater job security or more pleasant working conditions.

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About Me

Steve Allen is Associate Dean for Graduate Programs and Research in the College of Management at NC State University. He has appointments in the Department of Economics as well as the Department of Management, Innovation, and Entrepreneurship. Steve also is a Research Associate of the National Bureau of Economic Research, a non-profit research organization located in Cambridge, Mass.